silly gamble on the pound?

loveunit

Hi,

This is my first post, and comes after spending a few weeks reading comments on this forum, and also searching around for possible good sources of info about FX and currency trends.

I'm about to sign on the dotted line to buy a run down farm in northern Portugal, however I've probably chosen a particularly bad time, for the following reason:

90% of my money is in good old GBP - currently sitting at 1.06 against the Euro.

I have the deposit in Euros, so can pay that, and have negotiated up-to 6 months to pay the remainder - all of which I have in UK.. so to my question.

Should I cut my ( rather large ) loses and pay now... or is it possible that the pound will creep back up - I don't expect 1.40 or anything so high - 1.15 would make me happy!

Please, if anyone can offer some advice, I know predictions and forecasting comes with no guarantee.. but my gut feeling is there must be some small recovery in the rate.. after so many years.. am I way off the mark?

thanks in advance.

MX5huggy

Very difficult to know, as you know! But look at the other side if you change in to euros and it drops to 0.80 to the pound in the next 6mths you are quids in or is that euros in!

Depends on what you can afford for it to drop to before you can't afford it.

socrates

I think this question would get more relevant response on the recession board - the subject of currency is discussed more there

barrooo

For me, the main criteria for this is if you think the Euro will survive the current economic climate. We all know the pound has come under heavy selling pressure recently and rightly so if a number of predictions from the IMF etc prove even partly true.

Personally I think we may be better placed than economies in the Euro as we have more control over interest rates, stimulus packages etc rather than having to have a one size fits all policy as in the Eurozone, but as you say thats only a prediction based on data available.

P.S Just noticed your called loveunit...we don't like false advertising here

GDB2222

Currency movements are notoriously hard to predict. I suggest that you simply regard it as unpredictable and look instead at the risk element.

If you commit to paying a large amount of euros in six months time, you are taking a major risk if you keep the money in Sterling. you can make the risk calculation yourself, allowing for say a further deterioration in the exchange rate of say 30% to 50. I am not putting that forward as a prediction of what will happen, but the sort of range that might conceivably happen. if you cannot afford to take that risk, you cannot afford to cover your Euro liabilities with sterling assets. What you could do, though, is convert a large chunk of the money into euros and keep back a bit in Sterling -- the bit you can afford to risk.

gmgmgm

Currency trading is known to be very very hard- and that's for brilliant people who spend 120% of their time working in that field.
Frankly, better to remove the risk now... unless you really think you're cut out to change professions and become a (successful) currency trader.

mlz1413

Work out if you can still afford the place if the euro drops, if you can spread the cost over 6 months and don't worry about gains/loses per payment.

If you can't then pay now and accept that the security of the purchase is better than the risk of losing it.

ruggedtoast

Currency forecasting is notoriously hard, as has been stated. I would say however that the demise of the Eurozone has been confidently predicted since the end of 2007 and still doesnt look like happening.

The UK however is in basket case territory.

A euro in the hand could be worth 2 pounds in one of Brown's failed banks and all that.

Procrastinator333

You could always go half and half (or any other proportion you feel comfortable with)... Hedge part of the currency via something like betfair.

E.g. Bet on the rate dropping. If it drops you loose on the number of £'s you will have to pay for the prop, but you will recover some of it from a succesful bet on betfair.

The opposite is of course true, if the rate goes in your favour you will save on what you have to pay, but this will be offset by your loss on betfair.

Thinking about it, it would probably just be simpler to convert some of it today and the rest later.

Anyway!

Just thought I would suggest it as it doesn't have to be an all or nothing deal.

If it were me and I could absorb a movement against me if it did happen, I would wait and aim for somehting like 1.1. This is based solely on the fact the rate is very low compared to last few months, nothing more technical than that!

loveunit

lost me on the betting idea.. I'm betting it goes down before it goes up?

either way, 1.1 would do ok.. I mean.. it's better than 1.nothing, and to my completely untrained eye doe snot seem unreasonable after the amazingly high rates ( which I forgot to take advantage of ) which we had just a few months ago.

I sense a sound of desperation, but as a first time buyer, who has worked for years to actually have cash to buy.. I'm a little shaken by this sudden drop, just as I finally find the place I want to buy...

Option 2: wait 6 months, things are not better, then borrow the money ( mortgage ) for perhaps half the value, convert the rest from GBP ( losing, but at least not the whole lot ).. and wait longer for things to recover..

starts to get complex.. bite the bullet and do it now.. it's only money after all!

MX5huggy

The trouble is that it may never "recover" its not like the FTSE that will one day be back to 6000 it just a matter of when.